I'm a freelance writer who has published in the New York Times, The Wall Street Journal, The Los Angeles Times and others, and the author of the Forbes ebook "The Millennial Game Plan: Career And Money Secrets To Succeed In Today’s World." I graduated Phi Beta Kappa with Honors from Stanford University and have a master of arts from Columbia University’s School of Journalism. To learn more about me, go to www.laurashin.com, or follow me at @laurashin.

New Grads, Here's How To Spend Your Money Every Month

This is the second in a four-part series for new grads on managing your finances. (Read the first article here, the third article here and the final one here.)

The word “budget” gets a bad rap.

It often makes people think of having to be frugal (another unpopular word) or of not being able to do things they want to do (i.e., “It’s not in the budget.”)

But if I were to tell you that there is one key to reaching all your financial and most of your life goals, you’d want to know what that magical secret is, right?

It’s your budget.

See, every time you receive your paycheck — or any income — what you do with it can either take you closer to or farther away from your goals. For instance, if you want to take a trip to Brazil next year (for the World Cup!), you could stash money away now with every paycheck and, after doing that for a year, if you did your math right, you’d have enough to go. It’s the same for paying off student loans or amassing a down payment for a house — a little bit every month eventually gets you there.

On the flip side, if you don’t pay attention to how you spend, in a year’s time, you may be no closer to any goal and wondering where all your money went. This is actually the situation most Americans may be in: A recent Gallup poll showed that only one in three Americans creates a detailed household budget, a depressingly low figure.

In the first article in this series, I described how to set up your financial accounts, ranging from a 401(k) to your savings account — and now we’ll talk about how much to put in each account and toward your major expenses, including debt, housing and spending money.

1. Your Financial Foundation

When it comes to the big financial goals, you may already know your money will be pulled in three directions: toward retirement, savings and debt. According to a recent Wells Fargo survey, more than half of millennials know the importance of paying down debt, with 54% saying it’s currently their biggest financial concern. The same survey showed a similar proportion — 49% — have already begun saving for retirement.

If you can, figure out how much of your paycheck goes toward these items before you even find housing, because it’s more important to send money toward these than to what will most likely be a rental you’ll share with friends.

Emergency Savings And Student Loan Payments

Emergency savings can keep you from falling into credit card debt or could enable you to pay your bills if you were to lose your job. As I said in the first story in this series, you should have long-term savings for emergencies such as a layoff, and a short-term pot for big, one-time expenses that come up, such as a car repair.

In order to get those started, prioritize building those accounts in the first few months after you graduate. For those with student loans, this is an especially crucial time to take advantage of, because you may have a six-month grace period before you have to start paying back your student loans. “That’s a really great time to put as much as you can toward your emergency savings, so you have at least a couple thousand dollars saved up before you have to pay back those student loans,” certified financial planner Sophia Bera, founder of Gen Y Planning, said by phone. Another good reason to do it? So that you get used to that money coming out of your paycheck and not being available for spending. That will make it a lot easier when you start making student loan payments.

Another trick? Make your savings contributions a little bit more than your minimum loan payment. Here’s one example Bera made: “If you’re able to put $500 a month toward emergencies for six months and then your student loan payments are $350 a month, you could still put $150 a month toward emergencies once those payments kick in — and you’d already have $3,000 built up in savings.”

Credit Card Debt

If you’ve racked up credit card debt while in school, then come up with a plan to pay it off as quickly as possible. Credit card debt has a much higher interest rate than student loans, so it makes more sense to pay it off more quickly than it is to build up emergency savings which will only earn you around 1% at today’s interest rates.

In order to pay off your credit cards, you’ll need to stop using them completely and then put the same amount toward them each month. Also, see if you can pick up a part-time job or make side income using sites like TaskRabbit or Craigslist, or by doing things like tutoring, freelancing, babysitting, waiting tables or mystery shopping. Even look into selling old items you don’t use anymore that may have some value — and then put the profits toward your debt.

If you have credit card debt, paying it should be your top financial priority. “Put something toward emergencies each month, but the majority should be going toward credit card debt,” Bera said. “I like the idea of having at least $1,000 in emergency savings for car repairs or minor medical expenses. Get to at least a grand and then pour everything else into getting those credit cards paid off. It doesn’t make sense to sit there with $3,000 in emergency savings and then $4,000 on your credit cards at 18% interest.”

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.